By Claire Ferris-Lay
Arqaam Capital sees cut-throat competition, scaled back projects hurting contractors
Dhabi is fast becoming the worst construction market in the GCC after Dubai
amid a scaling back of projects, investment bank Arqaam Capital said Wednesday.
scaling down of state-backed projects is expected to have repercussions on
developers, particularly Arabtec Holding and Drake & Scull International,
analyst Mohammad Kamal said in a research note.
Dhabi is fast becoming the worst construction market in the GCC, after Dubai.
Cut-throat competition and a scale-down in government plans by 30 percent
during the year should have repercussions on backlog and margins on Arabtec and
Drake & Scull International,” he said.
withdrawal of the Guggenheim Abu Dhabi tender is a salient example.”
that state-backed Tourism Development and Investment CO (TDIC) cancelled a
tender related to the construction of the Guggenheim museum was reported on
Sunday. The Abu Dhabi-based firm told contractors it was reviewing its
procurement strategy and will not be awarding contracts at this stage.
for the tender included the Al Habtoor-Leighton Group, Arabtec, Saudi Oger,
Egypt's Orascom Construction and South Korea's Samsung C&T.
contractors and real estate developers were hit hard by the global financial
crisis with property prices dropping by about 60 percent from its 2008-peak.
Dhabi could see a further scaling back of non-essential projects, Kamal told
Arabian Business. “I can envisage infrastructure - everything from civil and
social infrastructure - being completed and handed over. Things like schools,
hospitals, roads, contracts on that nature are likely to go through,” he said
however, expect a scale down across commercial construction in the sense of
residential space, retail outlets and office space capacity. Anything that the
private sector is involved in delivering will probably experience a contraction.”
prices in the Gulf state have yet to bottom out and are expected to decline a
further 15-20 percent, said Arqaam. “We think there is a further leg down in
the UAE property market before residential and rents recover,” said the report.
sparse evidence that secondary market residential prices and rental rates have
stabilized in H1 11, incoming capacity (+17 percent and +32 percent in Dubai
and Abu Dhabi, respectively), remains substantial, even when adjusted for
projects cancellations and delays.
further 15-20 percent in downside to prices and rents in FY 11-12.”
rated Dubai-based Emaar Properties, the developer of the world’s tallest tower,
as ‘buy’ but recommended investors ‘sell’ Abu Dhabi’s largest developer, Aldar
Sorouh, Arabtec Holding and Drake & Skull International
were listed as ‘hold’ with an estimated share price of AED1.1, AED1.44 and
Very worrying reading when the general view of Abu Dhabi is one of wealth and prosperity. Think the UAE is still in for a rocky few years ahead. This financial crisis is truly global with nobody unaffected.
I think we often overlook the fact that Abu Dhabi has had to financially support the other six emirates in one form or other, power and water infrastructure, Dubai bail out etc. Despite a relatively buoyant oil price in the first six months, income is ultimately finite. Plus there has been a rescue required at Aldar, plus extensive affordable/social housing contracts awarded to keep developers in paid employment.
Withdrawal of the Guggenheim contract may be due to the ongoing boycott by the artists, why build if it just becomes a contentious issue.
Whatever estate agents say there is just too much property coming into the market and filling it is dependent on population increase, which is said to be around 5% growth annually. However, population growth in what category is the question? Lower paid workers as opposed to senior executives do not solve the problem.
The sovereign wealth fund is one of the world's largest, but it is still about attracting the right type of population.
I am not sure how to feel about Dubai's being challenged for the last place.
I agree with most of your comments. Regarding the population growth, more than 45 new schools are planned for Abu Dhabi through the end of 2015 which will accept over 60,000 new students. Their parents are not low paid workers. Low paid workers leave their families "home" wherever that is. Abu Dhabi is growing and obviously the schools know something otherwise why invest in building a new school unless it can be full of students.
Let's compare apples with apples here. Unlike the rest of the cities in the region, Dubai began it's construction boom at least 20 years ago. The vast majority of the first phase of the "Dubai" construction project has been completed, hence the slow down of new projects. To say that the other regional cities who have only recently realized the opportunity, and are now facing the fact that they missed the boat, can be compared to Dubai is slightly incorrect.
The 20 years prior to the recession saw an erra of exess liquidity, investor confidence and the excitement of a new frontier. There was a strong market for the "dream property". Globally. Dubai identified this and jumped on the boat.
The next boom will not be a construction boom. People have been grounded. The next boom, regionally, is likely to be entrepreneur sector. Real business, real people to fill the properties and drive a maturing market. This won't happen till the global market exits this recession. Until then, hold on!
Anon, there is a shortage of places in many Abu Dhabi schools. Also many existing schools will close down because they are in villas. And many parents will move their children from existing schools to the new ones for various reasons. Its naive to think that schools are being built to cater to solely new entrants. Abu Dhabi will definitely grow but using construction of schools is a bad indicator of trying to predict how much Abu Dhabi will grow
Dave, growth of Abu Dhabi schools is but one of many indicators but an important one. It would also be naive of you to assume all new residents would only place their children in the "new" schools and not existing schools. Sure, there will be many transfers but there will also be families new to Abu Dhabi who choose to place their children in existing schools for whatever reason. Etihad is growing, there are many hotels expected to open in Abu Dhabi in coming years, Yas Island continues to expand with the mall and water park, not to mention Fortune 500 companies continuing to grow as they try to obtain their share of Abu Dhabi's petro dollars. The long term outlook for Abu Dhabi is strong despite any short term residential/office real estate supposed glut based on analysts, most of whom could not pick a winner in a 1 horse race!
Can you name a country that is 'booming' that does not have a booming construction industry. Very difficult to find one I think. Any economy that is booming appears to have a healthy construction sector and a growing one at that. Construction is just not villas etc. I wager that any 'boom' from which ever sector you anticipate it will come from will have a healthy, growing construction sector along side it.
To suggest construction is not a real business with real people is rather difficult to comprehend.
The problem with the oversupply of properties is one for developer or the speculator or to put it another way the opportunist, it is not a problem caused by the construction industry. The construction industry just builds what it is contracted to build.
@Pedro, there is a big difference between a booming construction industry in a booming economy and a construction-driven economic boom (as we had in Dubai, Ireland or Spain)
In these markets the construction industry grew beyond what would be healthy or sustainable, crowding out other economic activities. I think that is what the OP refers to.